Balance Sheet / Financial Statement Flashcards
(14 cards)
What is a statement of financial position
A snapshot of the business’s financial position er terms of what is owes and owns and total equity
What is a non current asset
Something of value that the business owns for a year
What is a current asset
Something of valve that the business owns for less than a year and can be easily turned into cash
What are 3 types of current assets.
Receivables - when a customer is allowed to buy products on credit
Cash - most liquidity (availability) of money of the current assets
Stock
What is current liability
A debt that needs repaying within a year eg over draft
What is a non current liability
Debo that can be relayed longer than a year
What is total equity
Shows the value of capital invested into the business by shareholders or owners and the profit that have been retained. The 2 main parts ao share capital rand retained profit
Total equity= net assets
What are the types of liability
Tax - any run on profit the business owes to the inland revenue
Payables - amounts owed to suppliers that have given the business trade credit
What is the purpose of a state of financial position
Shows value. of business to stake holders and shareholders
Aids with decision making
Allows comparisons to be made
Legal requirement for Ltd companies to produce one
What is liquidity
Ability of a business to meet its short term commitments eg payment to creditors with its available assets
What are ways to improve liquidity
Use cash flow forecast to identify potential cash flow issues before they arise
Set clear objectives and look for ways to reduce costs
What is current ratio
Quick way to measure liquidity and the outcome is expressed in a ratio
What is the acid test ratio
Harsher test as it doesn’t guarantee you sell all inventory
If the ratio is less than 1:1 the it’s current assets do not cover its current liabilities
It is a measure of a company’s ability to pay its short tern liabilities with it ‘s most liquid assets
What is working capital
Capital of a business which is used in it ‘s day 2 day trading operations
Very low would indicate that the business was in trouble and was having an issue paying it’s expenses
